On a recent podcast episode, money expert Suze Orman explained why now is a great time to invest in a certificate of deposit. Interest rates recently dropped, and she expects them to keep falling. She advised any listeners who are thinking of getting a CD to take advantage of the market conditions today.
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Here’s what you need to know about CDs, current interest rates and why you might want to take Orman’s advice.
What Are CDs?
A certificate of deposit is a type of high-yield savings account offered by many banks and credit unions. Unlike with traditional savings accounts, funds stored in your CD aren’t meant to be withdrawn for a prespecified amount of time.
The trade-off for not withdrawing your money is that your investment will accrue more interest over time. CDs typically offer higher interest rates than other types of savings accounts. That said, you can withdraw the funds early if you really need them — you’ll just incur a penalty. The exact fee depends on your bank or credit union.
CD terms usually range from three to 60 months. The rates are determined by each bank, but they can be influenced by certain economic factors, such as inflation and federal interest rates — that’s why it’s so important to pay attention to the current market conditions when you’re shopping for CDs.
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The Current State of Interest Rates
In late September, the Federal Reserve cut interest rates for the first time since 2020. The reduction of 0.5 percentage points finally lowered the federal funds rate from its 23-year high.
While this was great news for people looking to take out an auto loan or mortgage, it might be a red flag if you’re considering getting a CD. Lower federal interest rates mean a lower yield, and, according to Orman, it’s likely that rates will continue going down after this initial cut — meaning you won’t get as good of a deal on your CD if you wait too long.
On top of that, the lower interest rates may be a positive thing for other aspects of your personal finances. You might be considering refinancing your mortgage or consolidating your debt to save money. With a little extra wiggle room in your budget, now may be a great time to invest in a CD and set aside those extra funds for the future.
Orman acknowledged that she might be wrong — rates could go up again — but she and other experts expect rates to continue decreasing.
CD Rates in October 2024
While CD rates generally fluctuate with federal interest rates, your exact yield will depend on the bank or credit union you choose and your location. Some banks are currently offering annual percentage yields as high as 5.00% for short-term CDs.
When choosing a CD, remember that you don’t have to go with the financial institution you currently bank with. Shop around and compare the deals in your area, and keep an eye out for promotional offers that may help you lock in a higher yield.
The sooner you act, the more likely you are to get a good deal on a CD before interest rates drop again.
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This article originally appeared on GOBankingRates.com: If You’re Thinking About Getting a CD, Suze Orman Says You Should Do It Now — Here’s Why
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